841D.51/142
The Assistant Secretary of State (Castle) to Senator Borah
My Dear Senator Borah: Referring to your request by telephone of a few days ago for a statement of the situation with respect to the so-called Irish bonds, I am pleased to submit for your information the following:
In 1921–1922 there were collected in the United States through agencies appointed by an Assembly designated the Dail Eireann, representing the so-called Republic of Ireland, approximately $6,000,000 to be used by that organization for the purpose, it was stated, of bringing about the maintenance of a free and independent Republic in Ireland and obtaining for said Republic international recognition from the important Nations of the world. The loans were described as “The External Loans” for the purposes and to attain the objects just indicated.
It appears that the prospectus recited that bond certificates would be issued to the subscribers for the amounts paid on their subscriptions with the understanding that they should later be exchanged for gold bonds of the so-called Republic if presented at the Treasury of the Republic one month after international recognition of the Republic, and that such bonds would bear interest at the rate of 5% per annum from the first day of the seventh month after the freeing [Page 90] of the Republic from “British military control” and would be redeemable at par within one year thereafter. The prospectus apparently also recited that “the gold bonds and interest thereon would be a first charge on the revenue of the Republic.”
It appears that of the amount collected in the United States approximately $4,000,000 was sent to Ireland. The balance was kept in banks in New York City in the name of the trustees.
The Irish Free State, which meanwhile had come into existence by the treaty between Great Britain and Ireland concluded December 6, 1921,7 brought an action in the Supreme Court of the State of New York against the Harriman National Bank and others for the purpose of obtaining possession of the funds held in New York, the action being based on the proposition that the Irish Free State as the de jure Government of Ireland was entitled to all the national funds of the “de facto Government of Ireland represented by the Dail Eireann or of the revolutionary group which attempted to function as such, by reason of the fact that it is the present de jure Government,” etc. The action was opposed by the trustees who claimed that they were entitled to continue in possession of the funds, and two bondholders’ committees were permitted by the court to intervene. One of these committees called the “Hearn Committee”8 contended that the Free State was not entitled to the possession of the funds subscribed solely for the purpose of the so-called Irish Republic, and that if the court should decide that the plaintiff was entitled to the funds then, in that event, the bondholders (certificate holders) were entitled to the full amount of their subscriptions with interest; that they had a lien upon the monies and securities within the jurisdiction of the court, and that a judgment should be entered in favor of the bondholders for their pro rata share of the funds in control of the trustees.
The court held that the Irish Free State did not succeed the revolutionary organization known as the Dail Eireann or the so-called Irish Republic which did not reach the stage of a de facto Government and, consequently, could not claim the funds as such successor; that the purpose for which the funds were advanced having become impossible of fulfillment, the subscribers to the loans in the United States were entitled to receive in proportion to their subscriptions the proceeds of the monies and securities in question, together with accumulated interest after payment of all proper charges allowed by the court. By a decree dated June 17, 1927, the court appointed three receivers to receive the records, monies and securities and make distribution of the latter under orders of the court. It is understood [Page 91] that the receivers have qualified and are taking steps to distribute the funds to the holders of the bond certificates.
The Legislature of the Irish Free State had previously on February 18, 1924, passed an Act entitled “An Act To Make Provision for … the Redemption or Discharge of the Loans Floated by … the First Dail Eireann and the Second Dail Eireann.” The Act provides for payment of the loans by the Minister of Finance as follows:
“6. (1) It shall be lawful for the Minister to take such steps as he shall think proper to ascertain the names and other particulars of all subscribers to the External Loans or either of them and the amounts subscribed by them respectively.
(2) The Minister may at any time issue to every subscriber to the External Loans or either of them a stock certificate for a sum equal to the amount so subscribed by him.
(3) The Minister may at any time redeem all or any of the stock certificates issued under this section either
- (a)
- By paying to the holder thereof a sum equal to the nominal amount of the certificate together with interest on that amount at the rate of five per cent per annum from the date on which the amount aforesaid was fully subscribed to the Loan to the date of redemption, or
- (b)
- By purchasing such certificates for such price as the Minister shall think proper.”
The matter was brought to the attention of the Department more than a year ago by Counsel representing the Bondholders’ Committee with a request that the Department use its good offices looking to a settlement by the Free State with the American subscribers to the loan. The petition recited, among other things, the above-quoted provisions of the Act of the Legislature, and statements by various officials of the Free State who had testified in the litigation in New York to the effect that the Free State accepted responsibility for the loans and expected to discharge the obligation.
The Department recognizing that the transactions, involving as they did the raising of funds in this country for the support of a revolution against a friendly State, could not be made the basis of a formal demand in behalf of the American subscribers has endeavored through the use of its informal good offices with officials of the Free State to bring about an arrangement by which the subscribers to the loans in the United States might be reimbursed. The officials have at all times stated to officials of the Department and publicly their intention to reimburse the certificate holders. An official of the Department only recently discussed the subject with a high official of the Free State who stated that had the Free State obtained possession of the funds involved in the litigation in New York no difficulty would have been experienced in carrying out plans for settlement, but that on account of the outcome of that litigation he was not in a position [Page 92] to state just how or when it would be possible to make restitution to the certificate holders.
The Department has also recently conferred with Counsel representing the Bondholders’ Committee and is awaiting a statement from them before deciding what further action it may be able to take in an effort to promote a settlement.
I am [etc.]